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American economy bounces back from brutal winter

Sarah Keegan

In this April 22, 2014 photo, Sarah Keegan of Windham, N.Y., with her son Kevin, fills out paperwork during a job fair at Columbia-Greene Community College in Hudson, N.Y. The Labor Department on Friday, May 2, 2014 said U.S. employers added a robust 288,000 jobs in April, the most in two years, the strongest evidence to date that the economy is picking up after a brutal winter slowed growth. (AP Photo/Mike Groll)
(Mike Groll)

WASHINGTON -- The American economy shrugged off the end of a brutal winter last month, rebounding with the biggest hiring surge in two years and suggesting that the job market's gains could endure.

Employers added 288,000 jobs across industries from manufacturing to construction to accounting. Even local governments hired. The unemployment rate sank to 6.3 percent, its lowest point since 2008, from 6.7 percent.

But the rate fell that far because many fewer people began looking for work in April, thereby reducing the number of unemployed. The proportion of Americans who either have a job or are looking for one dropped to a three-decade low.

And the monthly employment report the government released Friday showed that worker pay has yet to pick up -- evidence that the job market has not fully recovered.

Yet April's robust hiring gains suggested that the economy is returning to the solid pace of growth it achieved in the second half of 2013, before it was hammered by a harsh winter. Job growth has averaged 203,000 a month in the past six months, similar to last year's average of 194,000.

Analysts said the economy is facing fewer hurdles now. In addition to better weather, growth is no longer held back by steep government spending cuts, which slowed growth in 2013. Many companies had also stockpiled too many goods last fall, forcing them to cut back in the first quarter to clear their shelves.

"The absence of these factors is finally allowing the economy's underlying strength to come to the surface," said Bart Van Ark, chief economist at the Conference Board. "The result is not just a relatively strong gain in jobs in April but probably more of the same in May and June."

Explorys, a health-care data provider, has ramped up hiring in the past six months as more hospitals have used its services to limit their costs. Explorys' software can analyze patient data to predict which ones are most likely to need follow-up visits at home to prevent any complications.

The Cleveland-based company has added about 30 people in the past six months, bringing its staff to about 140.

The unemployment rate is now at the lowest level in 5½ years. It's fallen far enough that economists are anticipating the key next step in an improving job market: higher pay. In the past, when employers have had to draw from a smaller pool of unemployed people, they've typically been forced to offer higher pay.

That hasn't happened yet. And analysts differ about when pay might pick up.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, noted that the unemployment rate is near its seven-decade average of 6.1 percent. At that point, "you've typically seen wage and inflation pressures build," LaVorgna said. "And I see no reason why it won't happen this time as well."

Higher prices and rising incomes could also eventually force the Federal Reserve to more quickly withdraw its efforts to spur borrowing, spending and growth by holding down interest rates.

Economists note that one-third of the unemployed have been out of work for six months or longer, and recent research suggests that many of them aren't being seriously considered by employers. If so, that would mean employers are competing for a smaller pool of available workers than the unemployment rate suggests and might have to raise pay soon.

Many of the long-term jobless stopped looking for work last month. Their ranks fell 300,000 -- the sharpest drop in 2½ years -- to 3.5 million.

But many other economists, likely including Fed Chair Janet Yellen, point to factors suggesting that there are still a huge number of Americans desperate for full-time work. The number of people working part-time jobs who would prefer full-time positions, for example, rose by 50,000 last month to 7.5 million.

These economists aren't as willing to count out the long-term jobless. They argue that faster economic growth would encourage more employers to hire them.

"It's amazing what good labor markets can do to pull people out of the woodwork and back into jobs," said Diane Swonk, an economist at Mesirow Financial.

Average hourly wage growth was flat in April, suggesting that unemployment is still too high to force pay up.

Hiring last month was broad-based and included some higher-paying jobs: Manufacturing gained 12,000, construction 32,000. Professional and technical services, which include accounting and engineering positions, added 25,100 jobs. The number of government jobs grew 15,000, mostly at the local level.

The jump in hiring comes after a spate of other data showed that the economy is improving. Consumers are ramping up spending, businesses are ordering more goods and manufacturers are expanding. The strengthening numbers show that harsh snowstorms and frigid cold in January and February were largely to blame for the economy's scant growth at the start of the year.

The economy barely expanded from January through March, eking out an annual growth rate of just 0.1 percent, down from a 2.6 percent rate in the final three months of 2013.

Other data indicate that the economy was already rebounding in March and probably improved further in April. Consumers bought more cars and spent more at shopping malls. Overall consumer spending soared in March by the most in 4½ years.

All told, the positive news has led most economists to forecast a strong rebound in economic growth -- to a 3.5 percent annual rate in the current April-June quarter. And growth should reach nearly 3 percent for the full year, up from 1.9 percent in 2013, they expect.

The increased hiring provided a personal victory for Christopher Dickey, 41, who received a job offer just this week from Comcast. This month, he'll begin work as a sales executive in Savannah, Georgia.

It will be Dickey's first job with benefits in more than four years. He had lost a position at Merrill Lynch in 2008 after the financial crisis erupted. Since then, he's worked as a self-employed insurance salesman, earning only commissions.

The new job pays less than his previous positions in financial services. But "it's the best offer I've had in the past 4½ years," Dickey said.